Home > Boards > Free Zone > A.I.M. > Systematic Investing Group (SIG)

I copied this from my posts over at

Public Reply | Private Reply | Keep | Last ReadPost New MsgReplies (2) | Next 10 | Previous | Next
lostcowboy Member Profile
Member Level 
Followed By 22
Posts 1,666
Boards Moderated 1
Alias Born 01/31/02
160x600 placeholder
lostcowboy Member Level  Monday, 02/18/02 05:31:36 AM
Re: lostcowboy post# 28
Post # of 785 
I copied this from my posts over at the Fool.com.
I will try to describe how Synchrovest works, in case you or someone else, has only pencil and paper. This will seem a lot like Twinvest, but Synchrovest came first. Mr. Lichello striped Synchrovest of its better quality's to make Twinvest. IMHO

First decide how much you can invest each time. You then invest 3/4ths in stock and keep the rest in cash, just like Twinvest. Instead of a Twinvest code,you keep track of average cost. Next investment period, you take the old average cost and divide it by the new stock price. This new number he called his multiplier, it would be multiplied with your (3/4th investment) to form your final investment. However If the multiplier was larger than one he wanted you to do one more thing, subtract one from the multiplier, so you are only using the fraction. You would multiply this with your cash, to come up with the second part of your final investment. The next time period you do this all over. Just as with Twinvest, Mr Lichello thought there was a time to be invested and a time to cash in your winnings, This was at 100% profit on your money. The stock itself may have tripled, while you were making that 100%. Here is when it gets exciting and sexy.Lol! With Twinvest you do not have a way to reinvest that money you just got, with Synchrovest you do! And just like Aim , Synchrovest will be investing most near the low of the market, how ever just like AIM Synchrovest can use up all your ready cash.As a matter of fact Synchrovest will use up your ready cash faster than AIM!
Just like everyone else, I like to tweak on Mr. Lichello's programs. I came up with two for Synchrovest. One is never Invest more than half your ready cash at any one time, If you thank about it this is a good Ideal. Mr Lichello, liked to justify the titles of his books, with a demo stock chart, In super Power Investing he used this sequence of numbers, 10,11,12,13,14,15,14,13,12,11,10,9,8,7,6,5,6,7,8,9,10, and Synchrovest looks very good compared with Dollar cost averaging, that's why he wrote the book. But I had just made my spreadsheet and wanted to go up against AIM, how good would it do? So I plugged in the numbers for the $10,000 to $1,000,000 chart, How did Synchrovest do? Not very well! But when I looked closer I found out that my spreadsheet had not made one sell! Well I checked it for errors, and found none, so I sadly put it away for a while, I had really expected much better. About half a year later I was rereading Mr Lichello's book How to make a $1,000,000, and believe it or not had just got to the part about the old licence plate when it hit me! Mr Lichello had made the same mistake with Synchrovest! He was selling two high! you should not sell at 100% profit but at 50% profit. I quickly changed the spreadsheet, and reran the chart. Have you ever seen anything come close to AIM on that chart, I never had, but I did that day! Well I stopped and rechecked everything again. I even used pencil and paper, to verify the first two cycles, they matched. AIM had a $10,000 lead, And Synchrovest with just a $100 a month Investment came up from behind, How close did he get by the eighth year,seventh month? I am not going to tell you, you would not believe me! I will only say that the word Close does not cover what Synchrovest did that day. Now you can do one of two things, say what a good story that was, or go to that link and download that spreadsheet and test it your self, or if you have no spreadsheet program (Excel), you can do it by hand. Here is where that thirteen column table comes in handy. I'll start you off. Stock price 10,8,5,4,5,8 and repeat.
Planned Investment is $100 * 3/4ths, we don't have a multiplier yet, so we invest $75 at a stock price of $10,buy 7.5 shares and put $25 in ready cash. $75 divided by 7.5 shares give us a average cost of $10 a share. Next month the price is $8. The first thing we do is take average cost and divide it by the new share price, we get 1.25. 1.25 times $75 equals $93.75, but the multiplier is larger than one, so we subtract one from it to get a new multiplier, .25. .25 times ready cash($25) equals $6.25,add it to $93.75 and you get $100 invested at $8 a share, you buy 12.5 shares. Next month you take total amount invested in stock, and divide it by total number of shares, you get Average Cost of $8.75. Divide $8.75 by the new stock price of to get the new multiplier 1.75. 1.75 time $75 equals $1.31, there is no need to do the second multiplier as we have already maxed out, We only have a total of $125 that we can invest at this time! Mr. Lichello says only invest what you have on hand, no reaching into the kids piggy bank. We buy 25 shares for a total of 45 shares. The next month we have a total cost of $300 divided by 45 shares for a average cost of $6.67. Divide that by the new stock price of $4 to get 1.67. Multiply that with $75 for $125 to invest, but we don't have it so we invest $100. At $4 a share we get 25 shares for a total of 70 shares. We have invested $400, divided by 70 shares for a average cost of $5.71, not bad at all. Next month the price goes up, about time! $5.71 divided by $5 gets 1.14. 1.14 times $75 gets $85.5, we could take .14 times ?, cash on hand is zero so I don't do it, you could take 1.4 times $14.5, but in this spreadsheet I did not do it. So $85.5 invested at $5 gets 17.14 shares for a total of 87.14 shares, plus we put $14.5 in to ready cash. We have a total investment of $485.71 invested in 87.14 shares for a average cost of $5.57. Next month the stock rises again to $8 a share, we all shout we're in the money. $5.57 divided by $8 equals .7. .7 times $75 is $52.5. $52.5 divided by $8 is 6.53 shares for a total of 93.67 shares. We have invested a total of $537.97 divided by 93.67 for a average share of $5.74, we barely moved average cost. Now in my spreadsheet I keep a running total of total profit. Here is how I do it (total number of shares times current Stock Price minus Total Cost divided by total cost) at $8 we have a profit of 43.53%, we could sell now but we are greedy. So we wait, next month the stock hits $10. Average cost $5.57 divided by $10 is .56. $75 times .56 is $42 to invest, and $58 to go to ready cash, but wait before we buy stock lets see if our total profit went over 50%, our sell point. Yes it did 74.13%, lets sell! we sell, 89.37 shares, our ready cash is now at $1055.71 and we have 4.31 shares remaining. We are done for this month, except we need to raise average cost to $10.00. What I did here was keep the amount of shares I was getting ready to buy, I saved a commission. WE now have lots of cash, Mr Lichello say's that after the first sell to use your full monthly investment as you now have the cash. My spreadsheet is not set up for that. My spread sheet is not set up for investing. What it is set up for is so you can change things and see what effect it has on your profits.
Here is what I see, it is very important to sell during each cycle. It is less important to sell at the top of the cycle as we just did. I put in stock prices to simulate a bear market with several rally's, in order to catch the rally's you had to lower the sell point to 30%. My spreadsheet is free for anyone to use, or change. If you decide to make a sellable program, that used parts of my spreadsheet. I think it would be nice to give me a free copy.
I personally have not invested using Synchrovest. Being disabled I have no cash that I can risk in the stock market right now. But if I did I would start with Synchrovest, as it fits systematic investing very well. It Beats Dollar cost averaging from the get go, it beats Twinvest after the first sell point, it beats value cost averaging (I don't think I set up my VCA spreadsheet by the book), and yes it appears to give AIM a challenge. I feel it is worth everyone's time to give it a try.

RECCLES4
Didn't Mr. Lichello write about Synchrovest in the very first edition of the AIM book? I don't have that copy but I am sure I have read something about Synchrovest before and I do not believe this investing form to be widely accepted by Wall Street. Then again, the don't overwhelmingly accept AIM either, but we know what can happen by using AIM consistently over time.

rec

Yes he did, on page 26 chapter 5, As far as I know Mr Lichello never changed any of his editions, just added new chapters to the end. I first read the first edition in 1979,in that edition there was no Twinvest. Twinvest came with the 2ed edition. In 1980 I found a copy of Super Power Investing. Twinvest was made to go with AIM, by the time you get to $10,000 with it you should be able to go right into AIM at close to a 50%/50% ratio. However I believe Synchrovest will get you there faster.
I look on Twinvest as a one speed manual transmission. You have to manually pick your Twinvest code, if later in time you decide that Twinvest code was wrong you have to manually pick a new one to use. Also when Twinvest has a 100% profit Mr Lichello recommends selling all stock and starting over, But Twinvest does not know what to do with all that cash that you just got.
I look on Synchrovest as a Two speed automatic transmission. With Synchrovest the (multiplier) is created new each time, it is based on Stock price and average cost, both change over time. Also Synchrovest has that 2ed gear which he will try to use( if the multiplier is over one, subtract one and multiply the fraction with ready cash). The example I gave you only let Synchrovest slip in to 2ed gear once. Let me give you a second example, two inverters one using Twinvest and one using Synchrovest, they have both been investing at the rate of $100 for five year into the same fund which has stayed at the same price $10.The (Twinvest code is 750) and the (Synchrovest multiplier is at 1.0). They both have $6000 invested, $4500 in stock at$10 a share(450 shares)and $1500 in cash.Now lets see what happens when the price drops to $7. With Twinvest 750 divided by $7 equals $107 to be invested.
But with Synchrovest, we have a average cost of $10 divided by $7 to get a multiplier of 1.42, 1.42 times $75 equals $107, but Synchrovest is not finished yet it now goes in to second gear(1.42 minus one times ready cash) .42 times $1500 equals $630. The final amount Synchrovest wants to invest is $737.
What if the stock had dropped to $5 instead of $7, well Synchrovest by the book would have you invest all your ready cash in to the stock, If you are like me that may trouble you just a little bit, who says a stock is only going to drop 50%. I want to keep some back just in case. So I added a rule to standard Synchrovest 2ed gear. It now reads if the multiplier is grater than 1.0 you will subtract one from it, and multiply the fraction with ready cash, but if the fraction is greater than My limit then you will use my limit. The limit I recommend is 50%.I also decided that a selling point of 100% was to high, I thank 50% will do much better. In my spreadsheet you can adjust all these things to your own liking.
Both Twinvest and Synchrovest are good programs for systematic investing. I just personally like Synchrovest better.




Come see me at Systematic Investing group #board-966 lets talk formula plans.
Public Reply | Private Reply | Keep | Last ReadPost New MsgReplies (2) | Next 10 | Previous | Next
Follow Board Follow Board Keyboard Shortcuts Report TOS Violation
X
Current Price
Change
Volume
Detailed Quote - Discussion Board
Intraday Chart
+/- to Watchlist